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Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Production and Costs

Question:

A tuition teacher while teaching the chapter of Production wrote three facts about relation between MP and AP.
Fact 1 - When MP falls, AP also falls.
Fact 2 - As long as MP is falling but is higher than AP, AP rises.
Fact 3 - MP cuts AP when AP is maximum.
Then he asked the most intelligent student in the class, Saima to answer which of following facts were wrong.
She replied Sir, fact 1 and 2 are wrong. What do you think?

Options:

Saima is totally wrong

Saima is totally correct

Saima is partially wrong

Saima might be correct

Correct Answer:

Saima is partially wrong

Explanation:

The correct answer is Option 3: Saima is partially wrong

Let's analyze each fact and Saima's response:

  • Fact 1 - When MP falls, AP also falls.
    • This is incorrect. MP can fall while AP is still rising, as long as MP is above AP. AP only falls when MP falls below it.
  • Fact 2 - As long as MP is falling but is higher than AP, AP rises.
    • This is correct. As long as the marginal product is greater than the average product, the average product will continue to rise, even if the marginal product itself is falling.
  • Fact 3 - MP cuts AP when AP is maximum.
    • This is correct. The marginal product curve intersects the average product curve at the average product's maximum point.

Saima said fact 1 and 2 are wrong. Fact 1 is wrong and Fact 2 is correct. Therefore, Saima is partially wrong.

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